The Nation: Full Flights, No Profits; Flying Is No Fun, but It May Get Better

By MICHELINE MAYNARD

Published: June 13, 2004

ON June 1, the day after Memorial Day and the traditional start of the summer travel season, the scene at Atlanta's Hartsfield-Jackson International Airport, the nation's busiest, captured the state of the American flying experience in a nutshell.

Holiday traffic overwhelmed security guards, and thousands of passengers waited two hours or more to be screened. Lines of travelers wound past the ticket counters and through baggage claim areas.

One thing to note: The counters at Delta were packed, but so were those of its low-fare challenger, AirTran. The difference was, the new guy is making money. Delta could soon go bankrupt.

The crowds seem to bear out forecasts of the busiest travel summer in four years, but even that may not save America's traditional airlines -- the companies that sold the country on air travel in the first place.

That may be bad news for the tens of thousands of employees of those companies, but consumers may be looking at a considerably brighter future -- one in which they will be offered more choices in how they fly, where they leave from and what they pay.

Almost all the major airlines have suffered deep losses since summer 2000 -- the so-called summer of hell when delays and congestion clogged the nation's airports, enraging passengers and causing concern among regulators that the air traffic system was becoming overburdened. And then came the plunge in air travel after 9/11.

Since then, the airlines have collectively laid off more than 100,000 employees, mothballing more than 1,200 aircraft and banishing free cocktails and food from their flights. They also got a $15 billion bailout from Congress after the attacks.

This is the year the airlines hoped they would recover. Instead, they could lose $3 billion, and what's more, the business they're in seems to be changing right out from under them.

The changes, said Alfred E. Kahn, who oversaw airline deregulation in the late 1970's as the chairman of the Civil Aeronautics Board, have combined ''to turn a relatively prosperous and pretty competitive industry into a basket case.''

The major companies were booming as recently as the late 1990's. Since then, however, deregulation has, in effect, hollowed out the old industry and begun building a new one.

The primary problem, said Mr. Kahn, a professor in political economy at Cornell University, is that the major carriers have been unable to find a strategy for competing against low-fare airlines like Southwest, JetBlue and AirTran, which grow stronger each year.

For example, last month Southwest began flying out of Philadelphia, long dominated by US Airways. US Airways charged as much as $1,400 for a last-minute round-trip flight to Las Vegas, but Southwest charges no more than $598, and often hundreds of dollars less for the same trip. Southwest, given its lower costs, can make money on those fares, while US. Airways cannot. With low-fare carriers handling 25 percent of the industry's business now -- compared with just 6 percent at the start of the 1990's -- some experts see that figure climbing to 40 percent by the end of this decade.

Thus far, the major airlines have fought back primarily by adding flights and slashing their fares, as they did to defeat People Express, the first of the no-frills carriers, over a decade ago. But they are bleeding red ink on each of those flights.

Among the most troubled is United Airlines, which is in bankruptcy protection. US Airways, which technically defaulted on the loan package that helped it emerge from Chapter 11 protection last year, is warning it might go back into bankruptcy unless it gets union wage cuts. Delta Airlines says it, too, may seek bankruptcy protection.

The rise of the small airlines is sweet vindication for Donald Burr, the creator of People Express, which became an instant success in the 1980's with minimal service and cheap prices, only to vanish a decade later in the face of the major carriers' counterattack.

Mr. Burr says he believes that more change is coming. And he adds that it could be good for consumers. He foresees travelers finding alternatives to crowded terminals and jets backed up on runways, and has teamed with the former American Airlines chief executive Robert Crandall to form an air-taxi service that will serve underused small airports.

To Mr. Burr, the future lies in decentralization, with more small carriers serving different kinds of customers, at different levels of luxury and convenience. In other words, people may be able to shop for the kind of air service they want, just as they shop for, say, the kind of car they want.

''We had a era when everyone believed bigger was better,'' said Mr. Burr. ''That's not true anymore.''

Professor Kahn, who cheerfully accepts the blame for breaking up the old aviation system, says that system ''had all kinds of advantages, but it was predicated on people being willing to sit still and accept prices that were outrageous.''

Airports may be crowded, lines may be long, but the prices have put air travel in the reach of more and more people. ''That's why we deregulated,'' Mr. Kahn said.